Arab airlines vie to take over the skies
Dubai to launch second government-run airline, as nations across Arab world ratchet up flight traffic.
Arab sheikdoms eager for higher international profiles are ratcheting up their aviation race despite the global economic slump.
On Monday, the city-state Dubai plans to launch its second government-run airline - the third major carrier this decade to spring from the United Arab Emirates, a country of less than a million people. The new low-cost airline will cater to budget travelers in a region better known for opulence than bargains.
Unlike their counterparts elsewhere, other Persian Gulf airlines vow to stick to plane delivery schedules, as their deep-pocketed patrons push ahead with ambitious airport expansions. The head of one Gulf carrier has even hinted at another headline-grabbing order at the upcoming Paris Air Show.
The climb to the skies reflects the Gulf nations' drive to re-brand themselves as more than just oil-rich monarchies. Qatar for example is morphing into a research hub because of its natural gas wealth, while Abu Dhabi aims to become a cultural capital on the back of its petrodollars.
But concerns are growing - particularly now that the global economic downturn has undermined demand for long-haul and premium air travel. Some analysts wonder if the region's airlines are stuffing their fleets too quickly with too many planes, much like Dubai's overzealous developers raced to build luxury apartment blocks that now largely stand empty.
"Absent continuing growth in construction and services, you really don't need all those seats," said Bob Mann, an independent airline consultant. "It's the rate of capacity growth that's the question."
The rapid expansion is redrawing the world's air routes: It is now easier to fly from Houston to Dubai or the Qatari capital Doha than to Rome or Beijing. Gulf carriers, which typically boast more generous in-flight services than Western competitors, enjoy increased business even as traffic falls most everywhere else.
The International Air Transport Association said demand in the region grew 11.2 percent in April, extending a rare winning streak.
Still, the trade group expects Middle Eastern carriers to lose a combined $900 million this year as traffic gains are overshadowed by even larger increases in capacity. In effect, the region is gaining market share but flying emptier planes.
"In the short term, that's a bit of a mismatch," Mann said.
The pace of expansion has been phenomenal, both for the airlines and their suppliers. Gulf oil money has added tens of billions to Boeing Co. and Airbus' order books, helping to preserve thousands of U.S. and European jobs for years.
Among the carriers, Dubai's Emirates, the market leader, has grown in under 25 years from a humble short-hop airline into one of the world's biggest international passenger and cargo haulers. It now operates more than 130 planes flying to six continents, carrying more passengers abroad than any U.S. carrier except American Airlines.
New planes arrive on average every three to four weeks, among them some of the 58 double-decker Airbus A380s Emirates has ordered - the most booked by any airline anywhere.
The carrier uses its hometown Dubai, which has little oil of its own, as a global hub linking east with west and north with south - much like Chicago's rail yards and airports turned that city into a U.S. transport mecca.
Emirates recently posted what it said was its 21st straight year of profits - although the earnings were 71 percent lower than a year earlier.
A second Dubai airport, slated to eventually become the world's busiest, is due to receive its first flights next year - even as expansion at the original airport moves ahead.
The success has bred competition, with multiple carriers now flying similar routes in the tense airspace around Iran and Iraq. The overlap may help drive down prices, but also leads to unnecessary duplication, analysts say.
Tiny Qatar is quickly scaling up its national carrier, Qatar Airways, which flies to more than 80 cities. It is also building a new airport on reclaimed land along the crystal blue Gulf.
"Who told you it is a tough market for us?" Qatar Airways' head, Akbar al-Baker, recently said after outlining plans for at least half a dozen new routes in the coming months.
Al-Baker said the company plans to make further announcements at the Paris Air Show in June, suggesting it could add to plans for more than 200 planes worth over $40 billion in the coming years.
In Emirates' own backyard, the neighboring sheikdom of Abu Dhabi is pumping its vast oil wealth into Etihad Airways - which it pointedly dubs the seven-state federation's national airline. The six-year-old carrier made waves last year with an order for at least 100 planes. It recently announced a $70 million revamp of its first-class cabins.
Sheik Ahmed bin Saeed Al Maktoum, Emirates' chairman and chief executive, said he sees little reason to worry about having so many well-funded rivals based a quick drive or shuttle flight away.
"The competition will always be there, in good times and bad times," he said in a recent interview.
But some industry veterans have doubts.
"What's happening at the moment is a little artificial," Stelios Haji-Ioannou, the founder of European discount carrier EasyJet, said during a recent visit to Dubai. "The fact that a tiny, tiny little city like Dubai ... can actually justify an airline the size of Emirates is a little risky.
The problem with a hub-and-spoke airline like that is that you're competing with every other hub-and-spoke airline in the world, he said.
Gulf carriers have not been immune to the economic downturn, to be sure.
Emirates replaced two of its Airbus A380 superjumbo jets on the high-profile New York-Dubai route with smaller planes less than eight months after starting service because of weak demand. It also started offering unpaid leave to some of its 48,000 workers to cut costs, and said the economic outlook for the coming year is not improving.
Qatar Airways is pulling plush front-of-plane lounges from some of its aircraft and replacing them with coach seats, while Etihad is offering cut-rate promotional fares to certain destinations. Return flights between Abu Dhabi and London were recently selling for as little as $195 before taxes and fees.
Etihad CEO James Hogan summed up the industry's challenge earlier this month. Filling seats isn't the issue, he said. The issue is yield, or how much money each passenger brings in.
Still, Gulf states are pressing ahead.
Dubai will launch its new airline, FlyDubai, with daily flights to Lebanon and Jordan this week. Service to Syria and Egypt will be added later. The airline will compete not only against full-service carriers but also against Air Arabia, a budget airline operated out of Dubai's neighboring emirate Sharjah.
Both discounters have big plans. FlyDubai has some 50 new Boeing 737s booked at a cost of about $4 billion at list prices.
And Air Arabia late last year ordered 10 more Airbus A320s - on top of a previous order for 34 of the single-aisle planes. It just opened a second hub in Morocco in April, with its sights set on the European market.
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